Monday, March 19, 2007

Random People Creating Value

"I don't think anyone has proven that a random collection of people doing their own thing has created value."

—Steve Ballmer, Microsoft CEO, on GoogleThe Wall Street Journal

“The lady doth protest too much, methinks.”

—Queen GertrudeShakespeare’s Hamlet

In previous columns touching the repeated failures of Microsoft, Bill Gates and his Strong Man, Steve Ballmer, to keep up with—let alone lead—the online transformation of the technology world, I have nevertheless heaped praise on Mr. Ballmer as a marketing powerhouse who helped a geeky technology company become the monopolistic underpinning of the modern-day computer age.

And I take back none of those compliments here.

But the more I read of the iPod-avoiding, Google-bashing Mr. Ballmer’s pronouncements on Where the World is Heading and How Microsoft Plans to Get its Mo Back, the more I think Mr. Ballmer is the obstacle rather than the solution to Microsoft’s problem.

Microsoft’s problem, as I see it, is simply this: its desktop operating system monopoly—which provides not just the cash but the mindset behind all its product development efforts—is increasing irrelevant in a wireless, digital world.

And the more Mr. Ballmer protests otherwise, the more it makes me wonder how much longer the shareholders of Microsoft will put up with a CEO who won’t allow his children to use an iPod or do a Google search.

Such a blinders-on, head-in-the-sand, not-invented-here mindset has heretofore been more closely associated with Detroit, where auto executives drive only their own company’s best cars. Small wonder the bigs at GM, Ford and Chrysler failed to grasp, before it was too late, the quality and innovation that allowed Toyota and other imports to eat their collective lunch.

Apparently, Redmond is now the New Detroit.

How else to take Ballmer's dismissive comments about the folks at Google, who not for nothing have done more than any other organization in the world—IBM, HP, and Oracle included—to neuter the Colossus of Redmond?

The Wall Street Journal’s full quote on the subject is this:

He [Ballmer] went on to criticize Internet competitor Google Inc. for failing to achieve significant traction in ventures beyond its online search business. The company has been trying to double its staff in a year, he added."That's insane in my opinion," he said. "I don't think anyone has proven that a random collection of people doing their own thing has created value."

Now, the last quarter I saw, Microsoft had 71,000 employees, whose efforts generated about $3.5 billion in operating income.

Meanwhile, Google’s “random” collection of not quite 11,000 employees generated $1 billion in operating income in the same quarter.

Sharp-eyed readers will have already done the math, which is this: Microsoft generated only slightly more than three times the profit of Google despite having almost seven times as many employees as Google’s random collection of hipster do-good engineers.

That lack of productivity does not speak well of Ballmer’s aging time-card-punchers who, you might recall, now require dinners-to-go from Wolfgang Puck to keep them from seeking greener pastures than Redmond. (See “Microsoft Brings Back…The Comfy Chair” from May 31, 2006.)

Yet Ballmer retains complete confidence in his demonstrably less productive crew's ability to turn back the encroaching tide—or at least he expresses such confidence—despite all evidence to the contrary:

"I like to think of us as a two-trick pony" with the company's desktop and server software businesses providing those tricks, he said. "The third trick we're trying to do is online."

The fourth trick, he added, is mastering consumer products, such as the new Zune music player. "In a sense, I see kind of a "positive" in all of these areas," Mr. Ballmer said during an on-stage discussion with Robert Joss, dean of Stanford Business School.

Anybody seeing “kind of a ‘positive’ in all these areas” might require a stronger pair of reading glasses.

The Zune is an unmitigated nothing—not even a failure, because that would imply the expectation of success, of which I believe there was none outside the Redmond city limits.

For the record, at this very moment not a single Zune appears until the rank of 21 on the Amazon.com MP3-player bestseller list, behind 11 iPods, five SandDisks, three Creative Labs and a Samsung.

And the second Zune on the list does not appear until number 58.

As for the Microsoft operating system franchise, the much-hyped new-age Vista operating system has had about as much impact as the Wall Street Journal’s experiment with front-page advertising and thinner layouts.

How bad of a let-down is Vista? I went to a Best Buy to play around with a Vista PC and see how it was selling…and after a couple of minutes of clicking icons on a Toshiba notebook I actually had to check with a blue-shirted Best Buy expert to make sure the notebook was running Vista.Despite the much-hyped “translucent” pages and dispensing of toolbars, the thing looked and worked like only a slightly modified Windows XP computer.

Meanwhile, the random collection of hipster do-gooders in Mountain View are releasing web-hosted spreadsheets that work a lot like Excel, only much easier and without all the junk 80% of the world never uses, as well as web hosted calendars that work a lot like Outlook only much easier and without all the junk 80% of the world never uses.

And it appears only a matter of time before everything else the Microsoft Monopoly offers will be available online, only much easier and without all the junk 80% of the world never uses.

Yet Ballmer appears oblivious to it all—perhaps because he has never played around with Google Calendar or Google Spreadsheet:

"Leaders really do need to hit the right balance on the optimism-realism curve," he [Mr. Ballmer] added.

He said Microsoft has come up with a list of 70 technologies that will "change the world" in coming years.

While Microsoft is compiling “lists” of such technologies, Google’s random collection of hipster do-gooders has been spitting out real products that, if they don’t change the world, then they are certainly changing the way millions of Americans are using technology.

Google Earth, for example, and Google Maps, not to mention Google Mail.

If Mr. Ballmer believes the Google Boys are “insane” to be hiring so many randomly creative, inspired individuals, perhaps he should keep in mind Hamlet’s admission to his erstwhile friends, Rozencrantz and Guildenstern:You are welcome; but my uncle-father and aunt-mother are deceived....I am but mad north-north-west: when the wind is southerly I know a hawk from a handsaw.

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

"Meanwhile, the random collection of hipster do-gooders in Mountain View are releasing web-hosted spreadsheets that work a lot like Excel, only much easier and without all the junk 80% of the world never uses, as well as web hosted calendars that work a lot like Outlook only much easier and without all the junk 80% of the world never uses.

Yet Ballmer appears oblivious to it all—perhaps because he has never played around with Google Calendar or Google Spreadsheet..."

As soon as I read that the first thing that came to my mind was "Yet Google appears oblivious to it all -- perhaps because they have never played around with Zoho Mail or Zoho Sheet..."

I confess to being a rabid Zoho user since the company debuted Zoho Writer, and I'm a purringly content beta tester for Zoho Mail (formerly Zoho Virtual Office). But I have used Google Calendar and Google sheet, just for kicks. I didn't get any, I ran screaming back to Zoho.

How else to take Ballmer's dismissive comments about the folks at Google, who not for nothing have done more than any other organization in the world—IBM, HP, and Oracle included—to neuter the Colossus of Redmond?

Ballmer and Gates. Two trick ponies! One down, one to go but then what? The guy who have done more for MSFT stock in the past couple years is the guy who passes the buyback around the street. It's not that hard to do. It's a matter of calling a broker and say "buy me 15m shares of MSFT, look for naturals, buy anything and be aggressive at times".

Microsoft are streets ahead in terms of precision searching. I agree Windows is rubbish and should have been replaced by Linux and X-Windows long ago.

The above is my comment on Google Translate not being able to tell the difference between different types of match. You might sleep with the sort of match you get on a dating program. If you cannot tell the difference between lighting the gas and going on a date you cannot be searching effectively.

Microsoft must be doing something right. Why don't we all simply buy Linux and Star Office. The answer is that although Windows in all its forms is inferior to Linux Microsoft applications are superior to the competition. Latent Semantic indexing will be incorporated into the next Office generation creating a gap between Microsoft and the rest - including Google.

Google has no strategy for robots. Microsoft plans a robot in every home by 2013. You will be able to talk to your robot (presumably with Office too). Microsoft tens to deliver. They will work "dia y caballero to ensure that it does. Translate that aloud and you will see that translation and speech are the same problem [(k)night].

Google, and any other potential Microsoft competitor would sdo well to look at what Microsoft are doing. Google in particular should look at the basic theory behind translation and precision search.

"He [Ballmer] went on to criticize Internet competitor Google Inc. for failing to achieve significant traction in ventures beyond its online search business.

...

Now, the last quarter I saw, Microsoft had 71,000 employees, whose efforts generated about $3.5 billion in operating income.

Meanwhile, Google’s “random” collection of not quite 11,000 employees generated $1 billion in operating income in the same quarter."

While I agree with most of your post, I think you're misreading Ballmer's comment.

Just because Google is generating $1 billion operating income with 11,000 employees does not mean that they have achieved significant traction in ventures beyond the online search business. In fact, it's the online search (and advertising) business that is generating the bulk of their income, which in turn is funding the rest of the "random collection of hipster do-good engineers" who have not yet generated any income at all.

I'm not saying they won't. And I'm not saying the bulk of Microsoft's income isn't also generated by a small percentage of their offerings. And I don't even think Google has immediate income in mind when they start up new projects. They are leveraging their enormous success with search and ad revenue so that they don't have to worry about such things.

I think Microsoft probably has a higher percentage of employees who actually contribute to money-making projects, while at Google all the generated money is coming from a select few. Ballmer isn't wrong (from a financial perspective) when he talks about Google failing to find traction.

However, maybe he is missing an even more important point: money making enterprises are not the only thing that positions your company for long term success.